Understanding Maximum Pensionable Earnings (MPE)

14 May 2019
by
National Bank of Canada

All workers contribute 10.8% of their salary to the Quebec Pension
Plan (QPP), which is why the contribution amount varies depending on
income. However, the contribution reaches a limit at a certain amount.
This is what is known as the maximum pensionable earnings (MPE).

The MPE is equivalent to the maximum employment income that can be
considered for the calculation of a worker’s annual retirement
contribution. The MPE amount changes every year. “In 2018, it is
$55,900, and it’s the same for all 4.1 million contributors in
Quebec,” explains Jean-François Therrien, Chief Actuary of QPP. Any
portion of income higher than this amount is not taken into account
for either the contribution or pension calculation.

How is the maximum eligible amount established?

The MPE amount is established every year according to the average
weekly earnings growth in Canada.More specifically, the MPE
for the year is calculated based on the previous year. This amount is
multiplied by the ratio of the average weekly earnings for the
previous two 12-month periods, ending on June 30.

Here are the amounts for previous years:

Year

Amount

2018

$55,900

2017

$55,300

2016

$54,900

2015

$53,600

Calculate your contribution to the QPP

A person who earns $55,900 in 2018 will pay the same QPP contribution
as someone with an annual income of $100,000. The two will also have
the same pension upon retirement. It is important to know the MPE so
that you can provide supplementary amounts to your pension if
necessary (RRSP, TFSA, etc.). It’s a good starting point to estimate
if your
retirement savings are sufficient.

To find your annual QPP contribution amount, deduct the basic
exemption of $3,500, to which every worker is entitled. By subtracting
this from the MPE basic exemption, you obtain the maximum contributory
earnings. This is how you determine the contribution.

Pension in numbers for 2018

Maximum eligible amount of
employment income, also known as maximum pensionable earnings
(MPE)

$55,900

Basic exemption

$3,500

Contribution rate

10.80 % (shared equally between
employer and employee)

Maximum contribution for worker
(5.4%) and employer (5.4%)

$2,829.60

Maximum contribution for
self-employed worker (10.80%)

$5,659.20

Source: Quebec Pension Plan

How much will you receive at retirement?

The average amount of all the salaries you have earned during your
career is used to calculate your pension amount. However, not all
years are counted the same way. Years during which you were employed
for only part of the year are reduced in proportion to the time you
were not working.

If your average is equal or higher to the limit, you have reached the
maximum pension. In 2018, this was raised to $1,134.17 per month for
someone who plans to retire at age 65.

Retirement terminology can seem complicated. Financial planning
experts are there to guide you. They can elaborate on effective
savings and investment strategies for you. Do not hesitate to
consult with an advisor—after all, a well-calculated retirement is a
well-prepared retirement!

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